are loans that provide supplemental income to seniors 62 and older
based on the value of their homes. A reverse mortgage does not need
to be repaid until the homeowner sells the property, moves or
But the loans that were intended to help retired homeowners
maintain their lifestyle in their current homes are beginning to
cast a dark shadow. Several disturbing trends have emerged
prompting some experts to advise older homeowners to think twice
before considering a reverse mortgage.
5 disturbing trends
Some experts believe that a reverse mortgage should be a last
resort. There are no restrictions on how the money is spent, and
the loans have become a tempting refuge to help borrowers pay off
short-term debt. Here are five disturbing trends in the current
reverse mortgage market:
No. 1: Younger borrowers are choosing reverse
Reverse mortgages are designed for elderly homeowners to "age is
place." Meaning, reverse mortgage funds are designed to allow older
homeowners to remain in their properties until they pass away or
need to move to an assisted-living facility. The younger you are,
the less equity available to aid you through your retirement
5 costly reverse mortgage mistakes
According to Reverse Market Insight, the average age of reverse
mortgage borrowers went from 76 in 2000 all the way down to 62 in
"The concern is: what will you have to fall back on when you are
in your 70s, 80s and 90s," says Lori Trawinski, a senior strategic
policy adviser at AARP Public Policy Institute. "People are living
much longer than they ever expected to. There's a belief that
people will eventually have to use home equity to fund their
longevity, but at what point is it best to do that?"
No. 2: Borrowers are taking all the money at once.
Currently, about 70 percent of reverse mortgages are taken as
fixed-rate, lump-sum loans, according to the
Consumer Financial Protection Bureau's report to
Congress in June 2012
. This segment increased by 30 percent between 2007 and 2011.
With reverse mortgage products, the fixed interest on a lump sum
is folded into the loan and compounds over time. Younger borrowers,
in particular, may deplete the value of their home-equity so it may
not be available when needed. Aging seniors are likely to have
unforeseen health expenses or may someday need to move to an
assisted-living facility that they will no longer be able to
Is a reverse mortgage OK for your parents?
No. 3: The largest lenders have left the market.
The exit of MetLife, Bank of America, Wells Fargo and Freedom
Financial has allowed smaller lenders to enter the fray. The CPFB
warns that many of these smaller lenders are "not depository
"The changing economic and regulatory landscape faced by these
small originators creates new risks for consumers," wrote the CFPB
in their report to Congress.
No. 4: Some spouses are kicked to the curb.
Another emerging concern regards non-borrowing spouses. Currently,
some spouses are facing eviction after having been reportedly
pressured to keep their name off the deed to the property, without
being told that they could be left facing foreclosure when the
older spouse died. The AARP Foundation litigation filed a lawsuit
last year, suing HUD on behalf of clients who were non-borrowing
Questionable marketing practices.
Aggressive marketing practices and celebrity endorsements have
prompted some to call these tactics into question.
Some marketing solicitations misleadingly or deceptively pitch
reverse mortgages as 'free money,' or imply that the money comes
from the federal government or that the borrower could never lose
their home," wrote WRNicholsLaw in a recent blog post. "Such
deception, when coupled with a complex product that offers
confusing choices, makes it hard for consumers to evaluate whether
the loan fits their needs."
6 reverse mortgage tips
Here are six suggestions from AARP's Trawinksi:
- Shop around among reverse mortgage lenders
- Understand it's a
and clarify all your obligations
- Ask the housing counselor questions if there's anything you
- Consult a lawyer or a trusted financial advisor
- Discuss with family members
- Consider other options, such as a home equity line of credit,
moving or investigating programs that can assist with utility
bills, food and prescription medications
"Be wary of people who are encouraging you to take out a reverse
mortgage and invest the proceeds in an investment or insurance
product," says Alicia H. Munnell, director of the Center for
Retirement Research at Boston College. "Make sure that the house is
affordable after the reverse mortgage including insurance, property
taxes, and upkeep. Remember that the lender can foreclose if taxes
and insurance are not paid. Once the decision is made to consume
home equity through a reverse mortgage, it is much more difficult
to move to another house."
Reverse mortgages are not suitable for every senior. For more
information, consult the National Council on Aging's educational
booklet on how seniors can remain in their homes as they grow